ARGUMENTS BASED ON ERRORS REMAIN ERRONEOUS

David Bernstein posts (10 October) on The New York Times a conversation with Muhammad Yunus, the Bangladeshi founder of the Grameen Bank and recipient of the 2006 Nobel Peace Prize, HERE ”

“M.Y.: The capitalist system is based on a fundamental flaw, on misinterpretation of human beings. In capitalist theory, it is assumed that man is entirely driven by self-interest. That’s definitely not the description of a real human being. Human beings are selfish, and at the same time they are equally selfless, if not more. They want to help others. Adam Smith wrote this in “The Theory of Moral Sentiments.” He was a professor of philosophy. He was interested in morality. Then he wrote a completely different book that talked about self-interest and the “invisible hand.” The first book was forgotten. He never integrated the two books.

D.B.: If we integrated these ideas, what would be the implications?

M.Y.: Capitalism is all about options. But in the economic system, there is only one kind of business: business to make money — and it’s made more extreme by saying it produces best results when one maximizes profit. When we introduce the selflessness of people in the business world we get another option. Alongside conventional business, we add another type of business that will allow us to express our selflessness through business. The exclusive goal of this business, which I call social business, is to solve people’s problems. My book is full of examples of this.”

Comment

Another conversation where the participants discuss the real world as if their definitions of the real world describe reality - almost as if the economy they call capitalism listened to definitions and acted accordingly.

This error is profound. It sits alongside the absurd notion that Adam Smith “invented’ or somehow ‘created’ what we now call capitalism (a word first used in the 1830s - Smith died in 1790.

Even the sequence referred to by the conversationalists above is suspect. Muhammad Yunus wants to give capitalism a ‘social conscience” and thereby change human behaviours. He is building a false perspective based on a leaking boat. Adam Smith certainly wrote two books in two different episodes in his life, but not divided in the manner that Mohammad Yunus imagines. 

Moral Sentiments (1759) was appropriate at the time because Adam Smith was a Professor of Moral Philosophy. The subject that became economics did not yet exist. Smith’s other academic subject was Jurisprudence. He developed a strong teaching interest in Jurisprudence - the laws that governed human personal and necessarily, also, their social behaviours.

It was from this background that Adam Smith resigned his Chair at Glasgow University and spent ten years or more researching and writing Wealth of Nations based on what had been happening for centuries and had continued to happen in what we now call the economy, on a far wider scale in the late 18th crentury in North-West Europe. 

The Wealth of Nations (1776) and subsequent editions to 1789, addressed that transformation from the predominantly landed property economy to a market economy. It did not ‘invent’, nor create, capitalism. Nor did it ‘talk about’, ’self-interest’ and the “invisible hand” in any special manner.

 Indeed, Smith’s singular, once only, reference to “an invisible hand” in Wealth of Nations’ was ignored by Smith’s contemporaries and for much of the 18th century too by the many authors who wrote extensively about Adam Smith’s ideas contained in Wealth of Nations. Remarkably, major 18th-century and 19th-century economists when quoting from Wealth of Nations and addressing the ideas contained in or adjacent to the very paragraph that mentioned the ‘invisible hand’ did not mention nor comment on it their remarks.

The fact is that the so-called ‘invisible hand’ was ignored by his contemporaries and by his  successors! The significance of the ‘invisible hand’ is a wholly 20th-century phenomenon invented by Paul Samuelson n 1948.

Unfortunately, Muhammad Yunus, has been misled by those modern economists educated post-1948 into the modern myth of Adam Smith’s ‘invisible hand’, as has David Bernstein.